Cogeneration’s Time Has Come

By Rick Stouffer Cogeneration, a decades-old power-delivery system that has been embraced and shunned numerous times by utilities and customers in the last century, is poised to enjoy its greatest renaissance since central generation became the norm. A number of circumstances, not the least of which are the need for “six-nines” power reliability, energy efficiency, environmental–even security concerns–are melding to make combined heat and power (CHP) projects inviting. Even some utilities, which in many cases previously looked upon cogen as a plaque, have embraced the concept and are actively promoting it as a way to stay “connected” with customers. And, while the same ol’ deterrents to making cogen more widespread remain firmly in place–grid interconnection difficulties, archaic permitting regulations and an overall lack of tax benefits–cogen proponents believe the stars are aligning.

Presidential push

President George W. Bush’s National Energy Policy addressed CHP. It recommended that the president direct the U.S. Environmental Protection Agency (EPA) to shorten project depreciation life or provide an investment tax credit, to work with state and local officials to promote CHP at brownfields sites, and to be more flexible with regards to environmental permitting. “From a policy perspective, combined heat and power is positioned about as well as it’s ever been,” said Mark Hall, vice president of external affairs for Trigen Energy Corp. in White Plains, N.Y. At the very least, the president’s strong pro-CHP stance has opened the eyes of the rank and file at the EPA, which must take an active role in cogen for any movement to flourish, industry watchers believe. That’s not to say the federal government was not involved with cogeneration prior to its mention in the recent introduction of the president’s National Energy Policy. “Doe (The U.S. Department of Energy) has been pretty active with combined heat and power,” said David Van Holde, director of distributive energy for Boulder, Colo.–based retail consulting firm E Source. Through its CHP Initiative, housed in the Office of Power Technologies, DOE hopes to raise awareness of combined heat and power’s benefits and to highlight the barriers that limit its implementation.

Doubling capacity

Under former President Bill Clinton, EPA, DOE and the combined heat and power industry agreed to double the amount of CHP capacity to about 92 GW by 2010, said Joe Bryson, CHP Partnership team leader at EPA. The partnership was formed as a follow up to National Energy Policy recommendations. It is comprised of 17 Fortune 500 companies, city and state governments and nonprofit organizations that agreed to work with EPA to develop and promote the benefits of new CHP projects. EPA will promote the projects, and support accelerated project development through education, streamlined permitting and provision of technical tools and services. NEW COGENERATION BY CAPACITY CHANGE SPREADSHEET “The demand is there (for cogen),” said Suzanne Watson, senior policy analyst in Washington, D.C. with the Northeast-Midwest Institute. “It’s a growing market by necessity.” The need for more efficient use of energy has always been there, but masked through a thick veil of economies of scale utilities were able to deliver, along with low-price process heat from cheap oil and natural gas. Those industries with the twin needs of power and a high, steady thermal load, including pulp and paper, chemical, oil refining and plastics constantly were and are searching for ways to lower energy costs while increasing energy efficiency. The Public Utilities Regulatory Policies Act (PURPA) of 1978 and the Energy Policy Act of 1992 each in its own way encouraged cogeneration development in this country. PURPA allowed big oil and chemical companies, for example, to actually sell power back to utilities, said Doug Nordham, executive consultant at E Source.

Show me the money

But neither piece of legislation attracted utilities to cogen. “From the utility perspective, you still needed the same wires as before in place, but you’re not gaining anything,” Van Holde said. “Utilities look at cogen like they are losing a big load customer.” While a number of cogeneration projects have been constructed, and there is general agreement that the concept is energy efficient and helps reduce pollution, a four-word phrase still holds sway over many cogen plans: “Show me the money.” “Cogen shows a lot of potential, but who’s interested in it and what are the economics of a project?” Van Holde asked.

Expanding the base

Proponents believe interest is expanding from the traditional cogen industrial advocates (one estimate is that 90% of all cogen systems are used by manufacturers) to include perhaps smaller energy users, along with buildings and district energy systems serving universities, government complexes and central business districts in cities. Trigen, for example, has installed a 26-MW cogen system at the University of Maryland that it says saves the institution some $6 million per year in energy costs. It took six years of fighting the bureaucracy for Lawrence, Mass.-based textile manufacturer Malden Mills to finally realize its dream of a CHP powered facility following a devastating fire in 1995. Perseverance has paid off–literally–for Malden Mills, as the company is recording some $1 million annually in energy savings using the CHP system. While the savings are there for companies taking the cogen plunge, so, too, are the roadblocks. Select your favorite: Interconnection barriers, the high cost to exit the grid, lousy depreciation schedule for cogen products and the list goes on. Still, there is work ongoing on a number of fronts, both federal and state, to smooth out the bumps in the cogen road. And incentives are crucial to making cogen highly viable, said E Source’s Nordham. “Without some form of tax credits and incentives, I don’t see new cogen technologies as major factors in utilities operations,” he said.

Cinergy sees synergies

Some utilities are moving forward with cogen involvement. Cincinnati, Ohio-based Cincergy Corp.’s Cinergy Solutions Inc. unit was founded about five years ago to take advantage of what was perceived as the rapidly changing power world due to deregulation. Cinergy Solutions looked at cogen projects as a way to be a low-cost energy producer. “We also were hearing from our multi-site industrial customers telling us they needed more efficient operations,” said Chip O’Donnell, vice president, business development for Cinergy Solutions. The company currently has 19 operating projects totaling 1,075 MW of capacity, with several projects under development, including a 700-MW project with BP in Texas City, Texas. NEW COGENERATION BY REGION SPREADSHEET Cinergy Solutions contributed three cents, roughly $4.8 million, to parent company Cinergy Corp.’s $128.5 million third-quarter bottom line. NiSource likewise likes the look of cogen, forming Primary Energy Inc. more than five years ago to tap into the need for “inside the fence” facilities. “We’ve worked primarily with the steel industry in northwest Indiana, (NiSource is based in Merrillville, Ind.), and done seven or eight projects,” said Mark Wyckoff, Primary Energy’s executive vice president and chief operating officer. The company’s largest project to date, a more than 5,000-MW facility at the British Petroleum refinery in Whiting, Ind., is slated to go on-line within the next two months. Primary Energy likes working with huge partners, including Duke Energy Corp. and Fluor. Duke, for example, brings expertise as a very successful generating company, a player in global energy markets and electric and natural gas marketing. Duke also has the ear of turbine manufacturer General Electric Co. when a deal is struck. Fluor, likewise, has expertise and insider knowledge on the needs of industrial companies, the kinds of firms Primary Energy targets.

Tremendous growth

Cinergy Solutions’ O’Donnell said his company’s five-year plan calls for year-on-year growth in the 30% to 40% range, as it actively solicits cogen interest. Unlike some competitors, Cinergy Solutions takes strong positions in its projects; it builds, owns and operates facilites. “We can’t afford a bad project; we want to control risks,” O’Donnell said. Risk is something a number of companies associated with today’s grid–and could lead to a surge in cogen projects, believers say. Blackouts, brownouts, real or threatened, can have a chilling effect on production and commerce. “Six-nines” reliability, having power there when a company needs it 99.9999% of the time, only becomes more common as firms rely more and more on computer-aided, computer-driven technologies. And even with the tremendous ramp-up in new generation construction, many believe serious transmission constraint problems could happen soon.